Despite ongoing political tensions, Kenya’s economy has shown fresh signs of optimism following the full repayment of a $2 billion Eurobond that was due in June. The country’s official usable foreign exchange reserves held at the Central Bank of Kenya (CBK) have increased to $7.896 billion (Sh1.02 trillion) as of last week, according to data from the apex bank. This marks a $121 million (Sh15.6 billion) rise from the $7.78 billion (Sh1 trillion) reported the previous week.
The surge in reserves follows Kenya’s successful settlement of the Eurobond debt, which was originally taken in 2014. The repayment was made possible through a loan from the World Bank. Foreign exchange reserves are national assets held as a safeguard by the CBK to ensure the availability of foreign exchange and to meet the country’s external obligations, including imports and external debt servicing.
“The usable foreign exchange reserves remained adequate at $7,896 million (4.1 months of import cover) as of July 12. This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover,” the regulator said in its weekly brief.
Kenya settled the balance of Sh72 billion (about $558.16 million) of the $2 billion Eurobond debt before the June 24 deadline. Earlier in February, Kenya had raised $1.5 billion in a Eurobond buyback offer to reduce the chance of defaulting on the repayment. The outstanding note was settled on June 21, three days ahead of the maturity date.
The repayment has allowed the country’s forex reserves to surpass the four-month statutory requirement for the first time in five months. This is the second consecutive week that reserves have maintained above the statutory requirement post-Eurobond repayment. While the current reserves meet the CBK’s statutory requirement of four months, they still fall below the East African Community’s (EAC) convergence requirement of 4.5 months of import cover.
With the rise in forex reserves, the CBK is now in a better position to support the Kenyan shilling in case it faces pressure from international currencies. Despite the economic uncertainties, the shilling has remained stable against both regional and global currencies, trading at an average of 128.68 to the dollar last week.
Investor concerns regarding Kenya’s debt sustainability, which peaked from late last year into 2024, have been somewhat allayed by the government’s proactive Eurobond buyback in February. This move was aimed at settling the maturing loan and avoiding potential default.
CBK Governor Kamau Thugge, during the June 6 Monetary Policy Committee press brief, indicated that there has been a steady supply of inflows, contributing to a stable shilling. “We don’t see significant weakening or strengthening; there should be stability in the exchange rate,” he stated.
The CBK also noted that liquidity in the money market remained adequate last week, supported by open market operations and government payments. Commercial banks’ excess reserves stood at Sh18.4 billion relative to the 4.25 percent cash reserves requirement (CRR). The average interbank rate was 13.17 percent compared to 13.30 percent in the week ending July 4.
During the week, the average number of interbank deals increased to 47 from 36 in the previous week, while the average value traded increased to Sh29.6 billion from Sh24.2 billion.
Despite the political tensions, Kenya’s economic indicators show resilience, with the full repayment of the Eurobond debt instilling confidence in the country’s financial management and debt servicing capabilities. The rise in forex reserves provides a cushion for the economy, ensuring stability in the financial markets and the shilling’s exchange rate.
